I know you were asking about the outside name but for labelling their other things I just wanted to recommend these
http://www.attachatag.com/default.asp
I spent weeks sewing in name labels before my son started pre-school last year. We tried the iron on ones but they didn't stay in long enough if you wash clothes at a high temperatures -which you have to with messy toddlers!
Anwyay, my daughter starts this September and I just couldn't face doing it all again so gave these a go and they are fabulous! They literally take seconds to add and then stay in until you take them out. I was worried they might be uncomfortable for the kids but no complaints so far and my son is super sensitive/whingey about that sort of thing. They are brilliant!
Sorry I sound like an advert but they have saved me so much time- can't believe they aren't more widely known about!